In the past couple of weeks or so we’ve seen a number of news releases from Great Western Minerals Group Ltd. (GWMG) (TSX.V:GWG, OTCBB:GWMGF), concerning efforts to move their Steenkampskraal rare-earth project forward. After announcing a new exploration program at the site, and the “advanced discussions” concerning the construction of a separation plant in South Africa, the company announced the completion of the purchase of Rare Earth Extraction Co Limited (Rareco), the operators of the Steenkampskraal project.
Last month, while in South Africa attending Mining Indaba 2011 in Cape Town, I was able to sit in on an extended update from GWMG and Rareco management on their recent activities, some of which has subsequently been published in the above press releases and reported elsewhere. I also had the chance to visit the Steenkampskraal property itself.
Trevor Blench, Chairman of Rareco, said that the company acquired its 20-year mining license for Steenkampskraal in June 2010, and that a condition of its issuance was that the project had to commence within one year of issuance. He noted that the Rareco environmental management and social & labor programs had been approved and that arrangements to fully implement the Black Economic Empowerment (BEE) initiative were well underway. The BEE program was created by the government of South Africa after the end of the apartheid era, as a means of trying to give so-called Historically Disadvantaged South Africans (HDSAs) economic opportunities not previously available to them.
Mr. Blench noted that the previous operators of the mine site at Steenkampskraal, which was originally established to produce thorium in the 1950s and 1960s, left it in an appalling state. In return for the company agreeing to conduct appropriate remediation and rehabilitation work on the site over the life of the future mining campaign, associated mineral royalties normally payable to the state, have been waived, until the cost of the work has been met. My subsequent discussions with GWMG management indicate that without this arrangement in place, a royalty of up to 5% of gross revenues on refined mineral products, and up to 7% of gross revenues on unrefined mineral products, would normally have been due. GWMG and Rareco will not be obliged to spend money on rehabilitation at the same rate that royalties would have been due; the company has already placed R0.5MM in a rehabilitation fund and the fund will be reviewed annually.
Mr. Blench went on to note that a nuclear license is required for the Steenkampskraal project, in order to deal with the radioactive materials resent, and that this was previously approved by the authorities. The Steenkampskraal mine is an approved site for the storage of thorium as a result, a fact which Mr. Blench deemed to be a critical success factor for the project. It should be noted that under the existing nuclear license from the National Nuclear Regulator (NNR), GWMG / Rareco has to submit for approval, a detailed work program for each activity planned on the Steenkampskraal site, so that the NNR can provide the appropriate guidelines required while conducting such programs. The company also has a Draft Scoping Study out for public comment at present, prepared in support of the Environmental Impact Assessment Report, which is required in order to obtain a Waste Management License for production.
He also noted that the historical rare-earth ore reserve numbers for Steenkampskraal were established using a 5% cut-off grade, and given today’s pricing, the potential reserve would increase significantly if a lower grade was used (this is actually a similar cut-off grade to the one used by Molycorp for the Mountain Pass mine, which would probably also benefit from a lower cut-off grade value).
We also heard from Mr. Gerrit Horne, a labor lawyer and an independent trustee of the BEE trust fund to which Rareco donated 26% of its shares in Steenkampskraal Monazite Mines Corp (SMM). SMM is the specific legal entity that owns and controls the Steenkampskraal property, with Rareco retaining 74% ownership of SMM following the transaction. The fund will have a total of three trustees; one independent (Mr. Horne), one from SMM (Mr. Blench) and a third trustee who will be elected by the future HDSA employees of the mine, once it is operating. In addition, this third trustee will also serve on the board of SMM. The BEE trust fund will receive 26% of the revenues generated from the production of monazite concentrate at Steenkampskraal, without being required to put up capital in return. Mr. Horne commented that Rareco’s approach to the BEE initiative is viewed by the South African authorities as a good model for such initiatives within the mining industry.
Finally, we heard from Mr. Mohamed Mahdi, the newly appointed President of Rareco. He said that the South African government is keen to exploit its natural resources intelligently, through the extraction and subsequent beneficiation of minerals inside South Africa – leading to the creation of new jobs and bringing further competencies and enhanced competitiveness to South Africa. He built on Mr. Horne’s comments concerning the efforts built-in to the Rareco plan, to uplift communities local to the Steenkampskraal project, through the BEE program. Mr. Mahdi’s comments were actually quite striking, really bringing home the South-African perspective, and just how much the authorities want projects of this type to succeed. Those of us staring at rare-earth material-grade spreadsheets all day, can sometimes forget the human dimension inherent to projects located in historically disadvantaged areas such as South Africa or the First Nations territories of Canada.
Per GWMG management, Mr. Blench will continue on as the Chairman of the Rareco Board of Directors. GWMG has now acquired 92.6% of Rareco’s shares. A 75% ownership stake would have meant that there was no longer a requirement for the company to solicit votes from minority shareholders on important issues; going past the 90% mark means that the remaining minority shareholders are obliged to tender their shares to GWMG.
On the last day of the Mining Indaba event, I had the opportunity to accompany the GWMG and Rareco management team and directors, analysts and others on a visit out to see the Steenkampskraal project first-hand. Following a short 40-minute flight from Cape Town to Vredendal, the group took a 90-minute drive out to the mine, where the Rareco team gave us a tour of the site. Photos from the tour can be seen by clicking on the thumbnails below. The site is reached via a hard-dirt track across the back country.
The thorium at Steenkampskraal was discovered in 1949. Anglo-American mined from the top of an original outcrop down 100-120 meters, with stopes going along strike. Mr. Blench said that a monazite concentrate was produced on-site, and that mineral-bearing rocks were manually hand sorted during processing. Anglo-America was only interested in materials with 2% or greater Th, which contained 15% total-rare-earth oxides (TREOs) or more – anything else was simply tossed into the rock waste dump. The existing dump contains an average 7% TREOs. Also present are slime dams, containing very fine materials that are hard to recover.
Mr. Blench indicated that the plan is to blend surface materials and underground broken ore ahead of processing. There is apparently 2-3 years-worth of broken ore already present in the mine, available for immediate processing, with the ore below ground averaging around 17% TREO content.
Mr. Blench commented that in the early days of Anglo-American’s original mining campaign, the ore body was high-graded, in some cases resulting in materials containing 80% monazite, and up to 50% TREOs! Little peripheral drilling was undertaken outside of the main ore body, at that time, which was simply followed into the ground. GWMG’s recent press release indicates that exploratory drilling will be undertaken in the vicinity of the original ore body and beyond, to ascertain potential resources elsewhere on-site. The company has also acquired significant data sets from the previous mine operators. Mr. Blench noted out that there are potentially recoverable quantities of copper (with grades up to 1%), silver (Ag) (up to 18 g Ag / t) and gold (Au) (up to 1 g Au / t).
I asked the management team how the original connection between GWMG and Rareco came about, and why Rareco did not decide to simply develop the mine itself. I was told that in fact Rareco did want to develop the mine itself, and that the company received a mining license for the project in 1997, was financed and all ready to go – only for rare-earth prices to drop. The company tried to make a go of things a second time around, when prices started to recover in the middle-to-latter part of the last decade, but the recession hit, making it difficult to finance such mining projects, so Rareco decided to look for a partner. This was around the same time that GWMG acquired Less Common Metals (LCM), and according to GWMG, they were looking for a project that could be fast-tracked into production (in contrast to the other projects in their portfolio such as Douglas River, Hoidas Lake or Benjamin River). GWMG were introduced to Trevor Blench and GWMG made its first visit to South Africa to evaluate the Steenkampskraal project, in September 2008.
I also asked what sort of cost savings, from LCM’s point of view, that LCM would see on an annual basis, by procuring material via the mine at Steenkampskraal, as opposed to buying it from China. I was told that by flowing through the margin through to LCM, the margin jumps from 10-15% EBITDA / revenues to around 70% at today’s pricing.
There has been a fair amount of discussion on the projected start date for Steenkampskraal, and how that depends on whether or not a Bankable Feasibility Study (BFS) is completed. GWMG management indicated that the lion’s share of the timeline is still the construction phase, with production slated to begin by mid-2013. Should the company decide to complete a full-blown report, it would be finished by the end of this year. The decision to complete a BFS, depends on whether or not GWMG decides to try to use debt financing to raise the money to cover capital costs. Not going with the full BFS would bring production forward a few months, but would likely require GWMG to fund the costs via alternate means.
Finally, I asked about the processing of materials, once they are mined from Steenkampskraal. GWMG issued a news release a couple of weeks after the site visit, indicating that they are in “advanced discussions” with a number of companies, with the goal of constructing a rare-earth separation plant in South Africa. Each alternative being considered will involve the acquisition of separation expertise. GWMG management indicated that a rare-earth chloride would be produced at the Steenkampskraal site, with the subsequent separation done at a site in South Africa with appropriate supplies of water, power and available reagents and chemicals. Per GWMG management, a decision on the final partner for the separation project would be made within the next 2-3 months.
My thanks go to GWMG for facilitating my visit to the Steenkampskraal mine site.
Disclosure: at the time of writing, Gareth Hatch is neither a shareholder of, nor a consultant to, Great Western Minerals Group (GWMG), or any of its subsidiaries, or any other publicly traded junior-mining company. He did not receive compensation from GWMG or from anyone else, in return for writing this article.